- Banks, via Indian Banks Association, seek RBI approval for MSME loan repayment moratorium
- The moratorium would be opt-in, available only to MSMEs that request the relief
- US-Iran conflict may impact MSME demand, income, and loan repayment capacity
Banks, represented by industry lobby group the Indian Banks' Association, have requested that the Reserve Bank of India approve a moratorium on loan repayments for micro, small and medium enterprises, according to sources.
The proposed relief would be offered on an "opt-in" basis, restricted to those MSMEs that specifically request it.
"The ongoing US-Iran war is likely to have a material impact on demand for MSME-manufactured products, thereby hurting their income streams and repayment capacity," a senior banker stated. "The conflict has wide-ranging second- and third-order effects. Consequently, the IBA has sought the RBI's approval for a loan moratorium."
It is understood that the RBI has received the IBA's proposal and will make a decision shortly. The central bank has already extended export credit relief measures until June 30, aimed at helping exporters manage logistical disruptions and supply-chain delays triggered by the broader geopolitical crisis.
Banking sources noted that the RBI's previous moratorium during the Covid-19 pandemic did not result in the significant spike in bad loans that many had initially feared. They argue that, given the scale of the current US-Iran conflict, a similar financial buffer for vulnerable businesses is heavily warranted.
According to SIDBI's December MSME Pulse report, consolidated MSME credit outstanding reached Rs 67.6 lakh crore as of December 2025. This represents a 16% year-on-year growth and a five-year compound annual growth rate of 17%, driven by strong demand for secured business and property-backed loans.
Despite the current external pressures, asset quality has continued to improve. Balance-level serious delinquencies (90-720 days past due) declined to 1.87%-the lowest level recorded in five years.
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